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MySpace's Musical End Run

Independent musicians from small-town Iowa to Australia have used MySpace to win friends and influence people, gaining wide audiences for their music. Fans can flock to the social network to listen to a band's music, read its blogs, get tour dates, and watch videos. And soon, they'll be able to buy their favorite songs.

On Sept. 5, News Corp.'s (NWS) MySpace is unveiling a partnership with Snocap, a digital music company founded by Napster creator Sean Fanning (see, 12/3/04, "Shawn Fanning's New Tune: Snocap"), that will let musicians sell their music directly from a MySpace page—without depending on labels, distributors, or other middlemen.

MySpace founders Tom Anderson and Chris DeWolfe, who originally built MySpace for friends to showcase new music, are betting that the long tail of sales by grassroots bands with small followings will lead to a profitable business. "It's a logical progression for MySpace and the music industry in general," says DeWolfe.

VIRTUAL TUPPERWARE PARTY. Under the new partnership, artists can choose the tracks they want to sell, set the price for those tracks, and protect them with finger-printing technology. Here's how it works: Bands upload music to Snocap's registry. Snocap checks it against a digital database to make sure that it's original and not, say, a copy of Madonna's Like a Prayer, and then feeds musicians a string of code that can be placed anywhere within a MySpace profile. The digital storefronts will be available to all MySpace users by yearend.

Consumers then purchase and download the music as MP3 files that aren't wrapped in the copy-protection technology that's typically used to protect copyrighted works. That means the songs can be played on just about any type of digital music player, including Apple's (AAPL) iPod. Fans who visit the band's MySpace page can also paste the storefront code anywhere on their profiles, or as "bulletins," which automatically distribute the song to everyone in their personal network. Think of a virtual Tupperware party, except it's music—and, well, cooler.

Unlike iTunes, where all tracks are 99 cents, musicians set their own prices. MySpace and Snocap say they will take a cut just large enough to cover the costs of the materials and provide a tiny profit; the lion's share of the sale goes directly to the artists.

SKEPTICISM ABOUNDS. That's a sweet deal for independent bands like The Format, a Phoenix pop band that participated in a test of the storefront. The band has listed 12 songs for sale at 79 cents each. Already, lead singer Nate Ruess says he has received loads of e-mail from fans saying they appreciate that they can get the music directly online. "We got burned by our old label, and you realize you don't need these things when you have something like Snocap," Ruess says.

Still, it's unlikely that MySpace will be able to upend iTunes and other competing digital music stores. Jupiter senior analyst David Card is skeptical about how large an opportunity there is in selling bands one at a time. The real significance of this move is the power it gives to unsigned musicians to make money on their work, says Card.

At the same time, the partnership could prove a new way to make money from social networking beyond relying on advertising revenue. If users can sell music from their profiles, what else might they consider selling in the future? The possibilities aren't lost on MySpace. "Music has been the first step for us," says DeWolfe. "We also have filmmakers on the site and comedians, and they potentially have things to sell."

But, as always, the site will judge its next move by feedback from users. In social networking, authenticity is everything and popularity is fleeting. If users fear MySpace is selling out, they'll abandon it for the next site. As ever, DeWolfe and Anderson are listening.

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